CFIUS – International Trade Law Compasshttps://internationaltrade.foxrothschild.com
Mon, 26 Aug 2019 14:11:28 +0000en-UShourly1https://wordpress.org/?v=4.9.11https://internationaltrade.foxrothschildblogs.com/wp-content/uploads/sites/39/2016/08/cropped-cropped-favicon-32x32.pngCFIUS – International Trade Law Compasshttps://internationaltrade.foxrothschild.com
3232Recent CFIUS Enforcement Hints at Its Priority Industries and Concernshttps://internationaltrade.foxrothschild.com/2019/07/articles/committee-on-foreign-investment-in-the-u-s-cfius/recent-cfius-enforcement-hints-at-its-priority-industries-and-concerns/
https://internationaltrade.foxrothschild.com/2019/07/articles/committee-on-foreign-investment-in-the-u-s-cfius/recent-cfius-enforcement-hints-at-its-priority-industries-and-concerns/#respondWed, 31 Jul 2019 20:19:04 +0000https://internationaltrade.foxrothschild.com/?p=688The Committee on Foreign Investment in the United States (CFIUS)* recently cleared several investments and acquisitions involving foreign actors, giving businesses a small glimpse into which investment characteristics the interagency committee may be favoring in its clearance process.

More specifically, CFIUS’s forced divestments of Grindr and PatientsLikeMe evidence a strong concern by the committee towards Chinese investment, particularly in business fields where sensitive personal data is involved.

This concern aligns with FIRRMA’s expansion of CFIUS’s jurisdiction, as the committee now oversees foreign investment in a number of new industries including data privacy and critical technologies (including semiconductors, robotics, and artificial intelligence). CFIUS prioritizes critical infrastructure as well, which includes fields such as transportation, healthcare, and financial services.

In its recent decisions, CFIUS has continued to follow the observed trend of criticism towards Chinese investment. On October 10, 2018, CFIUS cleared the partial acquisition of the US-based data security firm Micro Focus International by Ultimaco, a German cybersecurity firm. Micro Focus divested its Atalla Hardware Security Module (HSM) and Enterprise Secure Key Manager (ESKM) product lines to the German firm, which has also been active in the HSM market for 20 years.

Despite CFIUS’s skepticism towards any foreign investment involving data security and sensitive information, the committee opted to clear the Ultimaco transaction, marking a stark departure from the forced unwinding of Grindr and PatientsLikeMe. The approval showed that, although foreign investment related to sensitive data will be scrutinized, it will not always be disallowed. The German firm’s clearance, when viewed in contrast to the Grindr and PatientsLikeMe decisions, strongly suggests that CFIUS has specifically taken a stand against Chinese investment in the field.

On July 6, 2019, CFIUS issued another clearance that further supports this notion. SoftBank, a Japanese conglomerate, received approval for its $2.25 billion investment in Cruise, a GM-backed autonomous vehicle startup.

According to two people close to the deal, CFIUS approval did not always appear certain, as the interagency committee scrutinized the investment closely. Red flags arose due to SoftBank’s investment and ongoing involvement with various Chinese companies including ride-hailing firm Didi. According to this source, the committee feared that Didi could appropriate vital technology from Cruise through SoftBank.

CFIUS only approved the investment after SoftBank assured that Cruise’s technology would not leave the US and would be completely off limits to the Japanese conglomerate.

The SoftBank deal once again illuminated CFIUS’s critical view of investments involving Chinese firms. Although SoftBank itself was not a Chinese entity, its Chinese connections apparently delayed the committee’s approval of the investment until the conglomerate offered substantial limitations on the accessibility of Cruise’s technology.

While CFIUS’s clearances of the Ultimaco and SoftBank transactions reveal its hesitation towards Chinese involvement in foreign investment, the committee has also shown that Chinese involvement is not dispositive in their review. CFIUS made this readily apparent in its April 2019 approval of China-based Huatai Securities’ indirect acquisition of Global Financial Private Capital, a United States-based firm.

AssetMark Financial Holdings, an American subsidiary of Huatai specializing in wealth management and financial technology, paid $35.9 million to acquire GFPC, another American wealth management company.

The approval further sheds light on which investments CFIUS considers national security concerns – while Huatai is a Chinese investor and subject to heightened scrutiny, the practice of wealth management was not one that CFIUS deemed to be too “sensitive” to allow investment in.

Taken together with the Ultimaco and SoftBank approvals, the Huatai clearance narrows the apparent disapproval of CFIUS down to any Chinese investment in business sectors specifically involved with sensitive data.

Looking forward, U.S. companies involved with foreign investors should be ready to face substantial CFIUS criticism when their business involves sensitive data or the investor is connected to China.

Companies hoping to secure investments that share both of these characteristics should be prepared to assure CFIUS that any critical information will be kept within the United States, in line with SoftBank’s guarantees. Without the imposition of such conditions, investments may suffer the same fate as those in Grindr and PatientsLikeMe.

*CFIUS serves the President by overseeing the national security implications of foreign direct investment. For more information regarding CFIUS’s general operation, click here.

]]>https://internationaltrade.foxrothschild.com/2019/07/articles/committee-on-foreign-investment-in-the-u-s-cfius/recent-cfius-enforcement-hints-at-its-priority-industries-and-concerns/feed/0Bloomberg Law Features Nevena Simidjiyska’s Piece on CFIUS Grindr Determinationhttps://internationaltrade.foxrothschild.com/2019/04/articles/committee-on-foreign-investment-in-the-u-s-cfius/bloomberg-law-features-nevena-simidjiyskas-piece-on-cfius-grindr-determination/
https://internationaltrade.foxrothschild.com/2019/04/articles/committee-on-foreign-investment-in-the-u-s-cfius/bloomberg-law-features-nevena-simidjiyskas-piece-on-cfius-grindr-determination/#respondMon, 08 Apr 2019 22:01:10 +0000https://internationaltrade.foxrothschild.com/?p=661A Chinese company was recently forced to sell California-based Grindr, the world’s largest gay dating app, after the Committee on Foreign Investment in the United States (CFIUS) determined that its ownership constituted a national security risk.

To explain the issue to readers, Bloomberg Law featured an article by Partner Nevena Simidjiyska, co-chair of the International Trade Practice Group, on the significance of the determination and what it means for foreign ownership of U.S. social media companies. In her piece, Nevena examines the impact of the Foreign Investment Risk Review Modernization Act of 2018 and the signals the Grindr decision sends about scrutiny of companies that hold U.S. citizens’ personal data.

]]>https://internationaltrade.foxrothschild.com/2019/04/articles/committee-on-foreign-investment-in-the-u-s-cfius/bloomberg-law-features-nevena-simidjiyskas-piece-on-cfius-grindr-determination/feed/0Impact of the Government Shutdown on CFIUShttps://internationaltrade.foxrothschild.com/2019/01/articles/general-international-trade-news-developments/impact-of-the-government-shutdown-on-cfius/
https://internationaltrade.foxrothschild.com/2019/01/articles/general-international-trade-news-developments/impact-of-the-government-shutdown-on-cfius/#respondThu, 17 Jan 2019 13:56:06 +0000https://internationaltrade.foxrothschild.com/?p=642The government shutdown, which is now in its fourth week, is causing a backlog of cases that will need to be reviewed by the Committee on Foreign Investments (“CFIUS”) once the government reopens.

CFIUS is an interagency committee chaired by the Secretary of the Treasury, which reviews certain transactions involving foreign investment in the Unites States in order to determine the effect of such transactions on national security. The shutdown will ultimately cause a delay in the ability of foreign acquirers to finalize transactions involving investments in the United States.

Since the government shutdown that began on December 22, 2018, CFIUS activities have been suspended. CFIUS has only been able to perform “caretaker functions” related to cases filed before the enactment of the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”), which was signed into law in August 2018.

In addition, the deadlines for all other cases that were not initiated prior to the enactment of FIRRMA are “tolled” during the shutdown. Although CFIUS filings can continue to be made during the shutdown, the Committee will not officially accept the filings for review.

The clock will not start running on any cases that are “tolled,” meaning the review or investigation process will not start until after the shutdown ends and CFIUS is able to officially acknowledge receipt of the case. CFIUS members will not be able to examine these transactions in order to identify and address any national security concerns that may arise as a result of the proposed transactions.

A link to the Department of Treasury’s contingency plan can be found here.

]]>https://internationaltrade.foxrothschild.com/2019/01/articles/general-international-trade-news-developments/impact-of-the-government-shutdown-on-cfius/feed/0Foreign Investment Pilot Program Adds New Mandatory Filingshttps://internationaltrade.foxrothschild.com/2018/11/articles/trade-restrictions/foreign-investment-pilot-program-adds-new-mandatory-filings/
https://internationaltrade.foxrothschild.com/2018/11/articles/trade-restrictions/foreign-investment-pilot-program-adds-new-mandatory-filings/#respondFri, 30 Nov 2018 19:45:40 +0000https://internationaltrade.foxrothschild.com/?p=637The Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), signed into law in August, authorizes the Committee on Foreign Investment in the United States (CFIUS) to conduct pilot programs to implement provisions of the legislation that did not become effective immediately upon enactment.

On October 10,, 2018, a FIRRMA pilot program was enacted that expands the scope of transactions subject to review by CFIUS to include certain noncontrolling investments made by foreign persons in U.S. businesses involved in critical technologies related to specific industries and mandates the filing of mandatory declarations for transactions that fall within the scope of the pilot program.

Type of investments covered: The pilot program expands CFIUS’s jurisdiction to allow review of certain investments by foreign persons that do not constitute an acquisition of control of a U.S. business (referred to in FIRRMA as “other investments”).

For an investment to be covered under the pilot program, it must give the foreign investor:

Access to any material nonpublic technical information in the possession of the target U.S. business;

Membership or observer rights on the board of directors or equivalent governing body of the U.S. business, or the right to nominate an individual to a position on the board of directors or equivalent governing body of the U.S. business; or

Any involvement, other than through voting of shares, in substantive decisionmaking of the U.S. business regarding the use, development, acquisition, or release of critical technology.

Foreign persons covered: The pilot program covers all foreign persons and is not country-specific.

U.S. businesses covered: The pilot program covers any U.S. business that produces, designs, tests, manufactures, fabricates, or develops a critical technology that is: (1) utilized in connection with the U.S. business’s activity in one or more Pilot Program Industries (discussed below); or (2) designed by the U.S. business specifically for use in one or more Pilot Program Industries (“Pilot Program U.S. Businesses”).

The pilot program covers all critical technologies, as defined by FIRRMA, of Pilot Program U.S. Businesses, including emerging and foundational technologies controlled pursuant to the Export Control Reform Act of 2018.

Industries covered: The pilot program covers 27 industries, identified by their respective North American Industry Classification System (NAICS) code (“Pilot Program Industries”).

Mandatory declarations: The pilot program establishes mandatory declarations (i.e., abbreviated notices that generally should not exceed five pages in length) for foreign transactions involving Pilot Program U.S. Businesses that are within the purview of CFIUS (i.e., both controlling investments and “other investments”).

Declarations must be filed at least 45 days prior to a transaction’s expected completion date. The Committee will have 30 days to take action.

Parties may choose to file a notice under CFIUS’s standard procedures rather than a declaration.

Parties that are required to file with CFIUS and do not do so can be assessed a civil monetary penalty up to the value of the transaction.

The pilot program commenced on November 10, 2018. It will end no later than the date on which the final FIRRMA regulations are implemented.